Despite increased security measures for check base stock, check fraud continues to be a growing worldwide problem. The current increased security measures generally increase the costs of checks as well as cause verification induced delays at cashing points that adversely affect the check recipients and the checking customers. Unauthorized users typically alter and forge checks in a number of ways, such as, for example, by using color printers and/or copiers, stealing base stock and/or security inks, bribing check printer operators, and the like.
Checks continue to be a common payment form in the United States of America (“USA”), where about 70 billion checks are issued annually. Check fraud in the USA has grown from about 13 billion dollars per year in 1997 to about 19 billion dollars per year in 2001. One reason for the current magnitude of the check fraud problem is that check security has heretofore been directed towards physical elements on the paper, without identifying and registering the base stock in an information system.
For descriptive purposes, the following terms are predefined:
“Planilla” or “Base”—Cut sheet security base stock, typically with 3, 4, 5 or 7 checks per sheet. “Continuous Check Forms”—Security base stock with traction perforations in different formats.
“Check base ID”—A data set (numeric, alphanumeric explicit or coded) that identifies each security paper check during the check production process.
“MICR line” The line printed in magnetic ink characters (E13B or CMC 7) near the bottom edge of the check that typically has the bank id, account number and check number with other data.
“Package” A delivery unit of base stock paper.
“Check”—One fully identified check.
“Checkbook”—Finished production unit. A book, containing several checks, inserts and other relative forms, which is delivered to the account holder as required.
“Valid Check ID”—The unique identification of a produced check.
“Invalid Check”—Any check that does not have a matching unique identification within the Valid Check Database.
“Live Check”—A check in the possession and responsibility of the account holder and considered to be at risk of alteration, theft and cloning.
“Live Check Database”—A database containing identification data for the valid checks at risk.
“Positive Pay”—A protection procedure in which the account owner sends the issued check information to the bank or check clearing service provider on a daily basis. Fraudulent checks are identified when their data is compared to the issued check file. Checkbolt has the tools to allow an easy and interactive report through e-mail or Internet for a relatively low volume of checks and through automatic file transfer protocol (“FTP”) tools for larger volumes of checks.
“Electronic signature”—The data resulting from an algorithm or a mathematical function that is calculated once a check is complete and ready to be issued for payment. It is a function of its amount, payment instructions and unique identification.
The Life of a Check
Checks are produced in specialized print shops that use as raw material security paper and special inks. The process starts at the printing presses to produce the check base stock, i.e. the security paper with the bank/customer desired background image. The production of the base stock might require the use of several steps with different equipment. The produced base stock sometimes is stored before continuing with the check production process and all the movements in and out of these secure storage areas must be controlled. In the pre-marking stage of the process, the base stock is converted into a blank check by printing the name and address of the account owner and the MICR line that contains at least the bank id, account number and the check number. Once the blank checks are printed, they are finished in checkbooks or fan fold packages. Usually at this stage there is a quality assurance station. The produced checkbooks are delivered using secure transportation to the bank and from there to the customer. There are cases were the customer orders the checkbooks directly from the print shop and they are delivered directly to him. The account owner uses the checks to make different payments by filling in a blank check with the amount to be paid, the name of the beneficiary or payee and signing it. When the account owner opened the check account, the name and address as well as the valid signatures and pay instructions were registered at the Bank. When the check is presented for cashing it should be validated in many ways to verify ifs correctness and authenticity: authentic document without alterations, valid and standing account, enough funds to cover it correct signature(s), etc.